Why changes in sales tax laws can impact your business? Let's see if a high-level sales tax can make an impact on your business and then the economic nexus is one of the new things that has changed drastically over the last couple of years. Also, how you can automate sales tax compliance, we're going to dive into exemption certificates as well. If you are not collecting tax or you have exempt customers how do best to handle that? We'll then also dive into streamlined sales tax, consumer use tax, and then also cross-border solutions for any of those companies out there that are expanding and working to sell to international customers.
What is Nexus & Economic Nexus?
Nexus is an industry term that means you've established some sort of physical presence or a tie to a taxing authority. Now we're going to a couple of different ways that you can create nexus. But sales tax nexus gives you an obligation to have to collect file and remit sales taxes in a given state. If I'm located in North Carolina and I will go to trade shows in texas? If I have multiple locations across the U.S, in Washington, Arizona, and California? If I have inventory or board members or employees outside of my home state, those are states you should be collecting remitting sales tax in. These are real property affiliates and economic nexus. But the big thing is looking at the state you're located where you have your home office and then ask yourself, if you have any of these things outside of that state and if you do then. You potentially need to be getting registered for sales tax purposes in those particular states. Now the South Dakota Wayfarer ruling went to the supreme court and they wanted them to change a rule that's been in place for a long time. They argued that the way people buy and sell products has drastically changed. They wanted the supreme court to change the rule and on June 21st of 2018, the supreme court ruled in favor of South Dakota and allowed them to impose sales tax collections for remote sellers, as we like to call them or out-of-state sellers. The biggest thing that you need, it needs to resonate today is that as a seller, you no longer control what states you collect from its sales tax in. What it means by that is, now if you sell enough of your products to a given state, you're going to have to get registered in there for sales tax purposes, and South Dakota was just the beginning and their thresholds were if you do in annual, the sales over a hundred thousand dollars or being the keyword for South Dakota. You do 200 individual transactions you're now going to have to get registered to collect from its sales tax and it doesn't take anything away from traditional nexus, traditional physical presence nexus as well. But economic nexus is kind of the new lay of the land. If you will in the sales tax base and made it very difficult for companies to scale. Also, have to get registered in new states and sales tax compliance is very challenging. It's typically been done manually. Companies are looking to automate this because now they're having to get registered in a lot more states. So this happened over the past years and again a lot has changed. But it's coming to fruition now. What we do is we look back at the past couple of years, so before the Wafer, South Dakota ruling, there were about six to seven states that already had economic nexus laws in place at the local level. Now when you fast forward for years, tax collecting states have adopted economic nexus. They put their thresholds in place and there's a handful of states that are worth pointing out. Five states do not impose sales tax collections and those are the nomad states which are New Hampshire, Oregon, Montana, Alaska, and Delaware. Those states don't do sales tax and we're just waiting on Missouri and Florida to put their thresholds in place and now, all 45 states plus Washington DC will have adopted economic nexus. What's going to be important for your business and/or your clients? If you're a QuickBooks Pro advisor or a bookkeeper is the days of collecting and remitting sales tax in one or two states are long gone. They're a thing of the past we're now seeing companies have to get registered in 45 states for sales tax purposes and for the longest time you rely on your bookkeeper or your accountant. They would do sales tax, but it's not their bread and butter right. You got to think about it like this. If they were a CPA or a Bookkeeper in Florida, they probably have a handle on Florida sales tax decently well. But now, when you add 20 other states into the mix, most don't have the foggiest idea about the sales tax in California. As for a business owner, no one would want to learn it right. I would probably leverage a partner or leverage someone.
You can see here a high percentage are now having to get registered in 21 plus states, and if we do simple math most of the companies would ask "what's will be my annual revenue". Now, if most states have a threshold of a hundred thousand dollars or 200 individual transactions. If you're a three to five million dollar company, odds are you're gonna have to get registered in some additional states and it's going to be based on what you need to be. Thinking of the states, you have the highest amount of sales in. If so, then you will sell a product that's very geographically based, lets say during the winter season, coats are in demand and you sell them to the northeast. You'd want to primarily look at those states and see if you've hit a threshold in those particular states. But now it's going to require businesses of all sizes to have to monitor their economic nexus thresholds and see if they've hit any thresholds and/or if they need to get registered. Again, each state has its tax rules product and service taxability can vary from state to state. Filing the requirements is different and again managing it gets very cumbersome. It takes up a lot of time, do what you do best, outsources all the rest and sales tax is no different.
Next is "how can you help yourself" and "what you need to be thinking about now". We already learned a bit about nexus and economic nexus, is a tax collection obligation imposed on sellers based on their level of economic activity within a state and unlike traditional physical presence nexus, it's based entirely on sales revenue transaction volume. I wanted to discuss and share more. But I wanted to give some space for our readers to share their ideas, suggestion, and opinions in regards to this matter about Nexus and Economic Nexus. Thank you very much for visiting my blog website. Hopefully, I was able to help you with "Changes in sales tax laws can really impact your business". If you have more suggestions, ideas, or opinions that you wish to share or add, please don't hesitate to comment below or contact me. Have a great day and stay safe.
